LIVE MARKETS-ECB: Will de Guindos be a dove or a hawk?

Reuters Staff

12 Min Read

* European shares dip
* Wall St closed for holiday
* Reckitt leads fallers as update disappoints
Feb 19 (Reuters) - Welcome to the home for real time coverage of European equity markets
brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on
Messenger to share your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net
ECB: WILL DE GUINDOS BE A DOVE OR A HAWK? (1350 GMT)
ECB politics is a top discussion topic today and although any tangible market impact of de
Guindos' likley appointment at the ECB vice-presidency is yet to be felt, investors have started
speculating about how could monetary policy change with the Spanish finance minister taking the
No.2 job post at the central bank.
Ultimately the key question boils down to whether he'll be a dove or a hawk and how could he
tip the balance of power in Frankfurt. Research firm TS Lombard believes your best bet lies in
the middle.
"Without a strong background of his own in monetary policy, it is very possible de Guindos
will turn out to be more neutral a voice – some might say a malleable one - on the executive
board than the dovish Constancio," they write.
If de Guindos gets picked, as it seems,, that would add pressure to appoint a northerner to
replace Draghi, paving the way for a clearly hawkish German ECB presidency.
"The most obvious German candidate is the controversial, hawkish head of the Bundesbank,
Jens Weidmann – but with or without him, a shift towards a less dovish executive board by end
2019 looks likely," TS Lombard adds.
As we write this post, news is breaking that Ireland has withdrawn Philip Lane from the
race, saying it will support de Guindos.
For more, read our story from Jan Strupczewski in Brussels: Euro zone ministers likely to
choose Spaniard to succeed ECB vice president.
(Danilo Masoni)
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LUNCHTIME UPDATE: STOXX AT LOWS (1303 GMT)
Over halfway through the session and the STOXX 600 is down at a session low, down
around 0.3 percent, as shares in consumer stocks and pharma drag the market lower.
With nothing from the U.S. for investors to get their teeth into, it looks like this rather
muted state of affairs could continue this afternoon. But at least traders will get a chance to
ready themselves for a busy week of earnings ahead!
Here's your mid-session update:
(Kit Rees)
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LUXURY: HANDBAGS VERSUS SHARES (1255 GMT)
An interesting note from Jefferies this morning on the luxury sector and how a strong
secondary market can support the hefty price tags on new items.
The broker's analysts met last week with Rachel Koffsky, specialist for luxury handbags at
auction house Christie's, who told them the secondary market in those accessories had grown to
26 millon pounds in 2017 from 5 million in 2011.
"Christie's data shows that Hermès bags often offer a positive return, for example one
Himalaya bought in 2010 for 29,600 euros was sold in 2016 for 157,500 euro marking", Jefferies
reported.
That's a 432 percent upswing against about 310 percent if one had bought a Hermès share at
the beginning of 2010 and sold it at the end of 2016.
Don't get overexcited though, as Jefferies cautions that "most of the top designer handbags
such as Chanel, Louis Vuitton and Gucci will (on average) depreciate in value".
Anyhow, like Bitcoin before its recent tumble, the returns offered by the luxury sector --
be it on handbags or shares -- can sometimes beggar belief. Here are Hermès shares compared with
Europe's STOXX 600 index over the last ten years.
(Julien Ponthus)
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WHY INFLATION ISN'T ALL THAT BAD FOR EQUITIES (1202 GMT)
Equity strategists at JPMorgan are arguing that a rise in inflation and wage growth should
not be seen as a "clear negative" for equities.
JPM points out that while actual inflation rates are still muted compared with history,
inflation is actually a lagging indicator of growth - they say it is positively correlated to
top line growth and pricing power.
They also see a move higher in wages as indicative of the economic upturn becoming more
sustainable.
"Of the main asset classes, equities are the most positively correlated to inflation
breakevens. In a sense, equities provide a natural hedge against inflation as they produce
nominal earnings and sales growth," JPM strategists say in a note.
They add that they believe that equities will tolerate higher bond yields, as demonstrated
by the fact that last week equities saw somewhat of a recovery while bond yields continued to
rise.
(Kit Rees)
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WHAT WENT WRONG FOR RECKITT? (1128 GMT)
Consumer staples have been lagging markets recently because of worries that their
steady dividend flows could lose appeal among investors in a rising rates world, and today's
disappointing update from Reckitt Benckiser is adding pressure.
What exactly went wrong for the maker of Durex condoms, Lysol disinfectant and Mucinex cold
medicine? Here are a couple of views from the sell-side, both focusing on its uncertain outlook.
UBS: "Management remains vague on its margin expectations for the year. Given the market's
high expectations around the strong cold/flu season, we think these results are unlikely to
convert the sceptics into buyers today" - Neutral
Investec: "Management did not provide explicit margin guidance, though there will be
headwinds from costs associated with improving the competitiveness of Mead and the creation of
the new RB Health and RB Hygiene Home divisions." - Sell
And Reckitt's chart is not looking good. Its shares are headed for their biggest one-day
drop in nearly seven years, down more than 6 percent at a 12-month low.
(Danilo Masoni)
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IF A CRYPTO FALLS ON RETAIL INVESTORS, DOES IT MAKE A SOUND? (1036 GMT)
Crypto currencies pose no risk yet to financial institutions, S&P writes today in a note
arguing that it is "much ado about nothing" in terms of financial stability.
"A collapse in its market value (of a cryptocurrency) would be just a ripple across the
financial services industry, still too small to disturb stability or affect the creditworthiness
of banks we rate", the rating agency said.
It is, of course a very different stories for individual crypto fans: "If the value of
cryptocurrencies dropped substantially, we expect retail investors would endure most of the
impact, while rated banks wouldn't feel the hit."
Remember this two weeks ago?
Banks in Britain and U.S. ban Bitcoin buying with credit cards
Anyhow, with so many pundits having called the burst of the Bitcoin bubble over the last few
months, a quick look at its comeback these past weeks is somewhat humbling.
(Julien Ponthus)
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OPENING SNAPSHOT: STOXX SET FOR FOURTH DAY OF GAINS (0843 GMT)
A positive open in Europe has put the STOXX 600 benchmark index on course for a fourth
straight session of gains, even though today's holiday closure on Wall Street could reduce
activity. All major indexes in Europe were posting small gains, as banks rose and steel
companies such as Tenaris and Outokumpu rallied after the U.S unveiled plans to impose steep
curbs on steel and aluminium imports from China and other countries.
Here's where we stand on European equity markets:
(Danilo Masoni)
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WHAT WE'RE WATCHING BEFORE EUROPE OPENS (0752 GMT)
European shares are expected to open higher today and put the pan-regional STOXX 600
benchmark index on track for a fourth session of gains, as a strong rebound in global equities
from a tumultuous start of the month continues. Futures were last up 0.2-0.6 percent.
A return of fund inflows and big upwards revisions to earnings expectations last week has
given fuel to the rebound in Europe but the STOXX 600 needs to gain another 6 percent to climb
back to the 2-1/2-year peak hit at the end of January.
Likely signalling intact confidence in equity markets is news this morning that Siemens
plans to list a "significant" minority stake of its Healthineers division on the
Frankfurt Stock Exchange in the first half of 2018. Still in healthcare, AstraZeneca
could find support after the FDA approved its immunotherapy drug Imfinzi for lung cancer.
In earnings news, Reckitt Benckiser will be in focus after the household goods company
posted a 10 percent increase in fourth-quarter adjusted net income and forecast 13-14 percent
revenue growth this year.
For more headlines look at the post below.
(Danilo Masoni)
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EUROPE'S EARLY MORNING HEADLINES ROUNDUP (0717 GMT)
UK
Reckitt Benckiser Targeting 13-14 Pct Total Revenue Growth For 2018
U.S. FDA approves AstraZeneca's immunotherapy for lung cancer
Acacia Mining says valuing Tanzania mines for possible sale
BP plans no Azeri platform shutdowns in 2018, eyes more investment
Britain's financial watchdog refuses to publish report on RBS
SWITZERLAND
Novartis readies to auction U.S. generic pills business -sources
SoftBank seeks Swiss Re board seats as talks advance - FT
GERMANY
Software may have helped Daimler pass U.S. emissions tests - report
Siemens rival GE exploring industrial gas engine business sale -sources
Airbus sees initial details of Franco-German fighter in 2nd half 2018
German carmakers in a spin ahead of diesel ban ruling
Adler Real Estate buys stake in Brack Capital
FRANCE
Chanel, Farfetch pair up for digital push at fashion label's stores
France to broaden scope of veto over foreign takeovers - PM
GTT core profit slips, but sees recovery in 2018
Gabon seizes Veolia's SEEG water and power unit
Euronext's FY core profit rises 4.9 pct
ITALY
Rai Way submits joint bid for Telecom Italia unit Persidera
Italy's Safilo to appoint Unilever executive to replace Delgado as CEO
OTHERS
Aker ASA raises 2017 dividend to NOK 18/share as net asset value jumps
Global dividends hit record of $1.25 trln in 2017, more to come
DAX LEADS FUTURES HIGHER (0704 GMT)
European stock index futures are up slightly, confirming earlier indications from financial
spreadbetters for a positive start of the week. Today's session may see reduced activity due to
the holiday closure on Wall Street.
DAX futures were leading the advance, up 0.5 percent, as you can see in the snapshot:
(Danilo Masoni)
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MORNING CALL: EUROPE SEEN UP (0619 GMT)
Good morning and welcome to Live Markets.
European shares are seen opening higher today following strong gains on Friday when
continued strength in company updates helped the pan-European STOXX 600 snap a
three-week losing.
Over in Asia, shares gained, joining a global recovery for equity markets as sentiment
improved gradually from a recent shakeout that stemmed from fears of creeping inflation and
higher borrowing costs.
Financial spreadbetters expect London's FTSE to open 12 points higher at 7,306.4,
Frankfurt's DAX to open 95 points higher at 12,545.5 and Paris' CAC to open 23
points higher at 5,305
(Danilo Masoni)
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(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)